Analysts weigh in on Osisko Development’s Utah gold mine acquisition

Less than two weeks after revealing its intention to add a new gold project to its list of assets, Osisko Development (TSXV: ODV) is getting positive feedback from market analysts on the deal. On January 25, Canadian-based Osisko announced it had entered into definitive agreements with three private American companies to acquire 100% of their ownership in Tintic Consolidated Metals LLC, which has been operating the Trixie gold mine in central Utah.

The deal will cost Osisko aggregate payments totaling approximately US$177 million, including about US$54 million in cash and the issuance of 35 million common shares at a deemed price of $4.32 apiece for a value of about US$123 million. Tintic Consolidated is also entitled to a further US$12.5 million in cash or shares at Osisiko’s election over five years, a 2% NSR (with a 50% buyback for US$15 million in Osisiko’s favour) and the right to 10% of the net smelter proceeds from the processing of about 21,000 tonnes of tailings currently at the site.

The acquisition sees Osisko gain ownership of just under 6880 hectares in Utah’s historic Tintic mining district, including the fully permitted, high-grade Trixie underground mine, an adjacent mill, and mineral claims to the property, located 95 km south of Salt Lake City. Trixie resumed operations in 2021, and last year produced 14,709 oz gold at an average head grade of 59 grams gold per tonne. The mine has a current capacity of 45 tonnes per day.

In a research report, Haywood Capital Markets analyst Kerry Smith wrote that “the acquisition is not cheap, but the reward is potentially big.” In particular, he highlighted the importance of two new discoveries at Trixie, the T2 and T4 structures, and called the grades at these new structures “pretty spectacular.”

The ultra-high grade T2 structure is sub vertical, averaging 0.3 to 1.0 metres in true width. It was discovered in 2020, when geologists stepped back in a newly developed crosscut on the 625 level of the Trixie mine. This revealed grades that ranged from 2 oz gold per tonne to over 100 oz gold per tonne from more than 2,300 samples collected over a 215-metre strike length.

The T4 zone is a stockwork veining system adjacent to T2 in the hanging wall. Haywood’s Smith notes that what makes these important is that “these two zones dip to the east, away from the old historic workings at the Trixie mine, opening up significant unexplored target.”  He also points out that while T2 has much higher grades, T4 is much wider in the stockwork, and thinks “there is a high probability the T2 and T4 structures are consistently mineralized from around the 600 level to the 750 level.”

Osisko has outlined an exploration plan for 2022 that includes a surface drilling program totaling 15,000 metres in the T2 and T4 zones. Reserve and resource estimates are to be released in Q4 of this year and Smith believes it will show the potential for 14 months of production just from T2, as well as plans that Osisko will build a new, 500 tonnes per day mill that will be operational by the end of 2024.

Kevin MacKenzie at Canaccord Genuity is another analyst impressed by the Tintic project, and not only because of the ultra-high grades. He also feels the project has a well-established infrastructure and a solid management team.

In a note, MacKenzie summarised his belief that “the near-term focus at Tintic will be to build out tonnage at Trixie, while longer-term we believe that there is significant exploration upside to be realized at both the local and district scale.”

MacKenzie gives Osisko Development a speculative buy rating, with a 12-month price target of $12 per share.

A financing element of the Tintic deal is that Osisko Development, through its Utah subsidiary, entered into a non-binding metals stream term sheet with a subsidiary of Osisko Gold Royalties (TSX: OR; NYSE: OR). That deal sees an upfront cash payment made to Osisko Development of at least US$20 million and up to US$40 million, with the company allowed to draw all or part of this upon closing of the deal for Tintic, which is anticipated to happen sometime in Q2 2022.

In early February, the company also announced it was working to meet the listing requirements that would allow it to begin trading on the NYSE. At presstime, Osisko Development was trading in Toronto at $4.97 a share, within a 52-week range of $3.89 to $9.00. The company has just over 133 million common shares outstanding, for a market cap of $662 million.